Offshore Wind Power to Support Japan’s Energy Needs Institutions, Infrastructure and Industries for Large-Scale Deployment March 2021 Acknowledgments In preparing this report, we conducted interviews with energy experts at energy companies and overseas research institutes and received many helpful suggestions. We would like to thank them for their invaluable assistance. This report is the reorganization and translation into English of Chapter 2 and following sections of the report “Offshore Wind Power to Support Japan’s Energy - Institutions, Infrastructure and Industries for Large-Scale Deployment,” written by the Renewable Energy Institute (REI) ’s Offshore Wind Study Team. Lead authors Mika Kudo Senior Researcher Shota Ichimura Senior Researcher Tetsuo Saitou Senior Research Fellow Keiji Kimura Senior Researcher Mika Ohbayashi Director Disclaimer The information contained in this report is based on information available at the time it was written, but Renewable Energy Institute bears no liability with respect to its accuracy and correctness. Cover Photo: Ørsted About Renewable Energy Institute Renewable Energy Institute is a non-profit think tank which aims to build a sustainable, rich society based on renewable energy. It was established in August 2011, in the aftermath of the Fukushima Daiichi Nuclear Power Plant accident, by its founder Mr. Son Masayoshi, Chairman & CEO of SoftBank Corp., with his own resources. Contents Introduction .................................................................................................................................. 1 Current State of Offshore Wind Power in Japan ...................................................... 2 1. Government policy and deployment levels ..................................................................................... 2 2. Sea area occupancy procedures under the Act on Promoting the Utilization of Sea Areas for the Development of Marine Renewable Energy Power Generation Facilities ...................................... 3 3. Current status of feed-in tariff system ............................................................................................. 6 4. Connection to power grid ................................................................................................................ 7 5. Regional initiatives .......................................................................................................................... 8 6. Major potential for floating offshore wind power ........................................................................... 9 Tackling Challenges .................................................................................................... 14 1. Ambitious targets and medium/long-term deployment projections .............................................. 14 2. Enhancement and operation of power grids with a view to large-scale deployment of offshore wind power ...................................................................................................................... 14 3. Enhancing the government’s leadership ........................................................................................ 15 4. Creating an environment for fair competition and stable projects................................................. 17 5. Building sustainable supply chains ................................................................................................ 19 Conclusion ................................................................................................................... 25 *Websites cited in this report were last accessed on November 30, 2020 unless otherwise noted. [Figure] Figure1-1 Promotion Zone Designation Under the Act ............................................................................. 5 Figure1-2 Types of Platforms Used for Offshore Wind Power ................................................................. 9 Figure1-3 Offshore Wind Power Potential Around Japan ....................................................................... 10 Figure1-4 Projected Generating Costs (LCOE) for Offshore Wind Power in the U.S. ........................... 11 Figure2-1 Offshore Wind Power Deployment Volume and Acquisition and Bid Prices in Europe and Japan .......................... 18 Figure2-2 Summary of Basic Strategy in Offshore Wind Power Vision (Ver. 1) ................................... 24 [Tables] Table 1-1 Planned Floating Offshore Wind Power Projects in Europe ................................................... 13 Table 2-1 Future Prospects for Wind Power-related Industries ............................................................... 20 Table 2-2 Technology Innovations to Reduce the Cost of Bottom-fixed Offshore Wind Power ............ 21 Introduction Today, around the world, offshore wind power is being increasingly deployed on a large scale. Utilization of renewable energy is accelerating, and there are high expectations for the enormous potential and high generating capacity of offshore wind power. Technological innovations, such as increasing the size of wind turbines, have led to a virtuous cycle of decreasing costs and increasing adoption. On the global level, the cost of its generation is expected to be equivalent to that of fossil fuel power generation by 20301. For Japan, surrounded by the sea, utilizing offshore wind power is highly significant and an urgent necessity. Deployment of renewables on a large scale is what will enable Japan to achieve carbon neutrality by 2050, the goal announced by the government in October 2020, and offshore wind power, which tends to be large in scale and have relatively high capacity factor will be one of Japan’s primary energy power sources. Japan is second in the world in the deployment of solar PV (approx. 62 GW as of end-2019)2, so wind power, which generates electricity whether day or night, needs to be accelerated to create a balanced renewable energy mix. The potential of the vast sea area around Japan can be exploited by the use of floating turbines which the foundations of the towers are moored to the seabed by chains or other means for deeper waters, in addition to the implantation turbines which the foundations are fixed to the seabed. Large-scale deployment of offshore wind power will also have a major impact on domestic industry. Turbines are getting larger and they have many components, and because their construction is a major undertaking, local procurement can reduce transport costs. This is why power providers and turbine makers have an incentive to build local supply chains to reduce costs. The ports where turbines and platforms are assembled and taken out to sea also need to be further developed and reinforced, and vitalization of local industry can be expected with the development of ports. Even after the turbines are built, operations and maintenance (O&M) are needed to maintain capacity factor rate at high levels and must be carried out locally for the duration of the operating period (20 to 25 years). Offshore wind power, which can be expected to utilize domestic and regional resources, is part of the industrial policy of many countries. Japan is finally now beginning to deploy offshore wind power on a large scale. This report is intended to indicate a direction for the steady deployment of offshore wind power as a form of energy that will support Japan into the future. Chapter 1 provides an overview of the current situation in Japan. A variety of systems and policies are currently being developed, making it difficult to summarize every program and initiative, so in this report we focus on the current state of sea area utilization rules, operator selection, electricity grids and other foundational systems. Chapter 2 looks at the characteristics of countries and regions leading the way in deployment of offshore wind power, in terms of both quantity and cost reductions, in order to clarify a direction forward for Japan. After the Japanese version of this report was initially published, the “Offshore Wind Power Industry Vision (Ver. 1)” was released by the Public-Private Council on Enhancement of Industrial Competitiveness for Offshore Wind Power Generation in the Ministry of Economy, Trade and Industry (METI)3. A summary of the document is provided at the end of Chapter 2. 1 International Renewable Energy Agency (IRENA), “Future of Wind,” (October 2019), Figure 24, p.50. https://www.irena.org/publications/2019/Oct/Future-of-wind 2 IRENA “Renewable Energy Statistics 2020,” (Jul. 2020), from p. 48-. https://www.irena.org/publications/2020/Jul/Renewable-energy-statistics-2020 3 Public-Private Council on Enhancement of Industrial Competitiveness for Offshore Wind Power Generation, “Offshore Wind Power Industry Vision (Ver. 1)” (December 15, 2020) https://www.meti.go.jp/shingikai/energy_environment/yojo_furyoku/pdf/002_02_02_01.pdf (accessed December 28, 2020) 1 Current State of Offshore Wind Power in Japan 1. Government policy and deployment levels Japan, as of September 2020, has deployed offshore wind power farms with capacity of approximately 20 MW. Most of these are government-led demonstration projects; there are just two commercially operating facilities that have completed testing and verification, and their capacity is around 4.5 MW. At the same time, the potential for offshore wind power in Japan is large, approximately 715 GW4 according to estimates based on studies by the Ministry of the Environment (MOE). Although the government’s 5th Strategic Energy Plan, the current plan, established